Chapter 3: The case for open access
fibre-optic hubs
46. In this chapter, we will outline our vision
for the UK's broadband infrastructure. In doing so, it will be
immediately recognisable that our vision does not match the Government's.
This is largely because, in considering the current policy, we
have found that fundamental questions of first principle were
not addressed. We will elaborate below, but it should be noted
that despite having, in our view, misjudged their first steps,
the Government appear not to have veered too far off course. Accordingly,
many of the specific measures we will propose could usefully act
as complements to rather than wholesale replacements for those
adopted under the current policy, and so throughout this report,
we offer recommendations in the hope of contributing to the success
of the Government's current efforts. It will be instructive, however,
perhaps for future policy makers in this area, to understand howand
whywe part company, in a rather fundamental way, at the
outset.
47. Recall, therefore, that the Government's
starting point is as follows:
· There are "still some 2 million households
who cannot access a good level of broadband,"[42]
and additionally;
· It is a matter of "simple fairness
[that] virtually all homes will have access to a minimum
level of service."[43]
48. This is a vision of a UK in which virtually
all people will have access to an infrastructure with the technical
capacity to carry a minimum level of service. Going further, the
Government also want as many people as possible to have access
to more than the minimum, with the most prominent feature of a
higher level of service being the speed at which data can run
over the infrastructure. Basic broadband is one thing, but the
strategy document makes clear:
"The benefits of superfast broadband have an
impact across the whole economywhether this is through
greater scope for tele-working and home-working, which reduces
the pressure on the transport network and lowers carbon emissions,
or better delivery of public servicessuch as remote education
services."[44]
49. It should also be noted that the Government's
strategy conjures a picture of what internet services should look
likeor rather, the qualities (particularly speed) which
define them. The starting point for their policy, in other words,
arises from thinking about broadband primarily as a commercial
service proposition, and one in which the general availability
of speed is the crucial factor. Then, given its spillover benefits,
the question that naturally follows is how to encourage the market,
as it stands, to supply it to more people, and as much as possible
to an agreeable standard.
50. Certainly, there are important commercial
realities to be addressed by policy. In our view, however, another
matter should have been considered as well, arguably above all
others: what should the UK's broadband infrastructure look like
in view of its place as a major strategic asset, at least on a
par with the UK's roads, railways and energy networks? This is
where policy on broadband infrastructure should start, before
equally going on to consider how to get there. A full and rational
answer to the question is liable to be rather technical in places.
For the purpose of clarity, therefore, we will as much as possible
maintain our discussion within the bounds of statements of principle.
In doing so, we outline the makings of a coherent vision for the
UK's broadband infrastructure, and as such, a more solid foundation
from which the Government's policy might have started, and to
which, with some judicious tweaking, it might be possible to return.
Our vision for the UK's broadband
infrastructure
51. In brief, our vision is of a robust and resilient
national network linked primarily by optical connectivity, bringing
open access fibre-optic hubs into or within reach of every community.
This would allow diverse providers, large and small, to contribute
to the reach and resilience of our national connectivity and allow
all individuals to benefit from whichever services, including
public ones, will run over it in time to come.
52. In addition, in order to realise our vision,
our view is that the UK's future broadband infrastructure should
deliver the following:
(i) Every community should be within reach of
an open access fibre-optic 'hub';
(ii) Every such hub should be fed by ample fibre-optic
cable, providing open access to optical links back to the exchange,
and back to the public internetwhich will not be free,
but made available on fair, reasonable and non-discriminatory
terms, allowing third parties to build their own local access
networks meeting appropriate technical standards, using whichever
technologies they choose, from that hub;
(iii) At the very least, we expect a hub to be
able to provide backhaul for a wireless network, where there is
demand, so that premises would be able to gain access to a wireless
internet service from at least one of these hubsassuming
they can afford to do so.[45]
53. We recommend that the Government consider
our vision for the UK's broadband infrastructure as set out in
this report. As a first step, we recommend that the Government
undertake to produce detailed costings of our proposal, not least
because our proposal removes the final milethe most expensive
per capita component of the network from the costs requiring
public subsidy.
BOX 1
The open access fibre-optic hub and dark
fibre
The open access fibre-optic hub is, in fact, quite a simple idea. It refers to a physical objectin all likelihood a boxsituated in the vicinity of a community. Its job is to act as a waystation between that community and the broadband infrastructure that spreads out across the rest of the country. Running into the hub from the wider network would be an ample number of fibre-optic cables, which in the first instance, would be 'dark,' in the sense that no data traffic will yet be running over them. The reason for this may be, for example, that it has not yet been connected in any way to the properties in the community around it. An important feature of the hub, however, is that the dark fibre running into it should be open access; so that anybody is permitted to build a link between a premises in the community and a fibre in the hub by installing their own passive or active electronic equipment in between, and then rent the existing fibre they are connecting to, which extends the connection from the premises out from the hub and onto the wider network. This would enable any type of compatible access network to be built by any local community, SME or infrastructure provider.
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54. The idea of the open access fibre-optic hub
within reach of every community is not new. In fact, the Government
themselves initially had plans analogous to those above, announcing
in December 2010 that: "an ambition to deliver a 'digital
hub' in every community in the country is at the heart of the...
strategy."[46]
55. It should be noted, however, that since then,
the idea appears to have drifted somewhat from their plans. In
oral evidence, Robert Sullivan, CEO, BDUK, told us:
"I would not say the digital hub concept exists
in pure terms, but the philosophy of getting fibre as deeply into
the network as we can is still inside the system."[47]
56. In particular, the basis on which the hub
can still be seen as a component of the Government's plans is,
according to Mr Sullivan, the availability of an on-demand
product from BT. He told us: "FTTH on demand from BT is a
good example of what we had in mind."[48]
For reasons which are made clear in BOX 1, however, the exclusive
ability of one provider to build a final fibre link is actually
a categorical departure from the idea of an open access fibre-optic
hub in which anyone is permitted to build a link between premises
in the community and a fibre in the hub. In fact, it well and
truly puts the kibosh on the idea. While the Government clearly
considered the proposal in general terms early on in their deliberations,
it is fair to say now, that it has disappeared from their plans
in implementation.
57. We note indications, however, that despite
its departure from the original plan, measures which would bring
about an end-result with benefits similar to those of the open
access fibre-optic hub, are being considered by the European Commission
as conditions of the umbrella state aid permission BDUK are seeking
for projects operating within its Framework. Interestingly, reports
suggest that the European Commission is particularly concerned
about the issue of open access and this is causing delay.[49]
This is unsurprising insofar as in June 2012, the European Commission
launched a consultation, which closes on 1 September, on the revision
of the guidelines on public funding for broadband services.[50]
This document is instructive, not least because it seems emphatic
on the issue of open access.
"... Third parties' effective wholesale access
to a subsidised broadband infrastructure is an indispensable component
of any State measure supporting broadband. In particular,
wholesale access enables third party operators to compete with
the selected bidder (when the latter is also present at the retail
level), thereby strengthening choice and competition in the areas
concerned by the measure while at the same time avoiding the creation
of regional service monopolies...
"... Due to the economics of NGAs, it is of
utmost importance to ensure effective wholesale access for third
party operators. The subsidised network must offer access under
fair and non-discriminatory conditions to all operators who request
it and will provide them with the possibility of effective and
full unbundling. Third party operators must therefore have access
to passive and not only active infrastructure. Apart from bitstream
access and unbundled access to the local loop, the access obligation
should therefore also include the right to use ducts and poles,
dark fibre or street cabinets."[51]
58. This would seem to suggest, inter alia, that
if the Government were to implement our approachwhich,
by design, incorporates open access, there would be fewer, if
any, state aid complications. In a further strand of European
Commission policy, consistent with its state aid consultation,
the Commission has recently published its conclusions following
consultation on the broadband investment environment. The first
conclusion drawn states that:
"Competition needs a level playing field. In
particular, alternative players should not have to compete with
one hand tied behind their backs: incumbents should not be able
to discriminate between their own retail arms and others'. Although
often undervalued in today's regulatory practice, securing truly
equivalent access by alternative operators to incumbent networks
is probably the most important guarantee of sustainable competition,
on existing and new networks."[52]
59. We endorse the European Commission's suggestion
that open access to dark fibre at the cabinet-level should be
introduced as a condition of BDUK's umbrella state aid permission.
60. Accordingly, not least, in order to expedite
its own programme, we recommend that the Government incorporate
open access to dark fibre voluntarily as a feature of its Framework
agreement with suppliers.
61. More broadly, we endorse and invite the
Government's view on the European Commission's conclusion on the
broadband investment environment that: "securing truly equivalent
access by alternative operators to incumbent networks is probably
the most important guarantee of sustainable competition, on existing
and new networks."
62. The state aid negotiations are a useful illustration
of the point made earlier that, while the Government may have
made an initial misstep in failing to stop and think strategically
about what the UK's broadband infrastructure should look like,
perhaps serendipitously, they have not veered too far from the
path down which proper consideration of this question would have
led them. To that extent, we will be able to make a number of
recommendations throughout this report which could relatively
easily help put the Government's strategy back on course. For
the purposes of clarifying the differences between our vision
and the Government's, it will remain more straightforward to think
of the open access fibre-optic hub idea as an entirely alternative
proposal to the approach being pursued by the Government. Accordingly,
we will continue to refer to it as such.
63. With just this brief outline in place, the
significance of the differences between our vision and the Government's
may be somewhat opaque. In the remainder of this chapter, we will
try to make this significance clearer. In straightforward terms,
there are three principles behind our vision and the open access
fibre-optic hub approach which could usefully be incorporated
into the Government's thinking:
· Broadband policy should be driven, above
all, by the need to arrest and ultimately eliminate the digital
divide, creating the opportunity to unleash its social benefits
for all UK citizens;
· It should also be driven by an avowedly
long-term, but also flexible view of the infrastructure's future,
avoiding prejudicing any particular technology, or falling into
the trap of specific speed targets.
· Broadband policy should also strive to
reinforce the robustness and resilience of the network as a whole.
We will take these in turn.
Principle 1: Reducing the digital
divide
64. The first principle that lies behind our
vision is as follows: policy in this area should be driven, above
all, by the need to arrest and ultimately eliminate the digital
divide, creating the opportunity to unleash its social benefits
for all UK citizens. In fact, the Government really have to be
aware of two 'divides.' The first separates those communities
who can access the infrastructure of their choice from those who
cannot. The second separates those who, once they have access
to the internet, take it up and use it effectively, from those
who do not or cannot.
65. The digital divide with most obvious relevance
to the present inquiry is the first one, between 'haves' and 'have-nots,'
separating communities who can gain access to the infrastructure
they would choose from those who cannot. Of course, the potential
benefits of reducing this divide are inestimable, with effects
on, among other things, the ability of individuals to work from
home, on the ability of socially isolated people to stay in contact,
and ultimately the ability of national and local government to
provide public services, even to far-flung, remote communities.
The Government's own strategy document makes a similar point that:
"for example tele-working can:
· Help reduce the barriers to entering the
labour force for those groups which may be less mobile (e.g. disabled
and parents with child-care responsibilities who wish to work
part-time);
· Potentially contribute to the reduction
in traffic congestion and carbon emissions;
· Improve work-life balance".[53]
66. In our view, social benefits of this type
are the most significant reason for public policy interest in
broadband access, and the use of public money is therefore justified
to ensure everyone has the opportunity to benefit from them. We
were interested to hear from Suvi Lindén, former Finnish
Communications Minister and Special Envoy for the Broadband Commission
for Digital Development, about the social benefits, particularly
in healthcare, that could be realised from enhanced broadband
connectivity:
"We just cannot afford to provide the same level
of care as we are doing now and that people are used to having
in Finland. I have quite often said that, for some municipalities
that have these elderly people living, for example, 80 kilometres
from the centre of the municipality, 'It is cheaper for you to
build up the fibre to this old lady than to take her to live in
the city centre in the nursing home.' It costs what it would cost
for the municipality to have her living in the public-provided
nursing home for two months."[54]
67. It is not clear, however, whether the Government's
strategy will eliminate the divide between those communities who
can and those who cannot enjoy these benefits. This is because,
on the one hand, there is no guarantee that the Government will
meet their targets; and on the other, the targets themselves are
inherently divisive. In concrete terms, they set a course for
a UK in which "virtually all homes will have access to a
minimum level of service"[55]
and in which "superfast broadband should be available to
90% of people in each local authority area."[56]
68. The divide inherent in these targets is,
as noted above, a natural consequence of developing policy in
response to the wrong question. With the proposition in mind that
policy needs above all to stimulate the market to widen the provision
of broadband as a service, the investment challenge is the obvious
obstacle. In the stated absence of sufficient Government resources
to subsidise provision in all areas which present such a challenge,
it then becomes inevitable that some areas will be left behind.
This is all the more disappointing for the fact that the communities
who would enjoy the greatest uplift in their quality of life from
enhanced broadband provision are precisely those likely, on such
a policy, to find that it still lies beyond their reach, maintaining
if not widening the digital divide.
69. By contrast, if policy development begins
by asking what the UK's broadband infrastructure should look like,
and with the principle that whatever the answer, it must serve
to reduce if not eliminate the digital divide, it will set itself
a challenging task, but one which puts the Government on the right
track. This is precisely the principle which lies behind our vision
for the UK's broadband infrastructure: a national network which
brings open access fibre-optic hubs within reach of every community.
Over time, this would ensure that all communities are able to
benefit from the advantages of access to broadband.
70. It may be helpful, briefly, to explain how
the open access fibre-optic hub idea could make this work, and
hence why it is an improvement. As things stand, the exact capacity
provided to individual premises with relatively poor internet
connections is generally a factor of the length and quality of
the copper wire that runs between their property and the local
exchange. For example, to take speed as an indicative measure,
with the latest DSL technology:
· a 700 metre line could achieve 40 Mbps;
· for 2km of copper, the download speed
may reach 'up to 5Mbps';
· with more than 3km of copper, the download
speed will probably be less than 2Mbps.[57]
71. This degradation in capacity of a copper
line means that, at a certain point, capacity is so compromised,
that a community would be better served by radio connections or
by laying more local fibre. The obvious question that arises is
how a new radio mast could be connected back to the existing network,
or how fibre connections could be extended out to reach a community.
At present, a number of regulatory and proprietary obstacles would
stand in the waywe will discuss these and their specific
remedies in Chapter 4. At the moment, no one wanting to undertake
either of these projects, except the incumbent provider (overwhelmingly
BT or Virgin Media), would realistically be able to do so.
72. By contrast, as noted in Box 1, a key feature
of open access fibre-optic hubs would be the fact they are precisely
thatopen access, meaning any third party, not merely the
incumbent provider, would be able to use them. This would enable
any type of access network to be built by any local community,
SME or infrastructure provider to make the final connection between
the hubs and people's properties, so long as they meet certain
mandated technical standards.
73. To that end, once fibre is driven out to
the hub, we anticipate the emergence of a new industry of infrastructure
providers who will be able to respond to local demand and build
out local access networks accordingly (see Chapter 5). As these
emerge, the choice between fibre and wireless technologies in
the local access network will naturally be driven by local demand
and market forces. Certainly, fibre will represent a premium choice,
but where resources cannot stretch to it, wireless links will
provide a more affordable option. A wireless network serving over
200 subscribers on Knoydart and the Small Isles, in one of the
most remote areas in the UK, is already providing symmetric speeds
of up to 30 Mbps. These speeds are currently constrained by the
limited capacity of the backhaul connections available, not the
local wireless links. The fibre-optic hub idea, therefore, represents
a way to reduce significantly if not eliminate altogether the
digital divide.
74. It should be noted, however, that we do not
see the introduction of the open access fibre-optic hub as a silver
bullet. A number of measures, both regulatory and policy-related,
would need to be in place to enable its success. We will elaborate
on these points later, noting that many of them could, as we have
indicated, help to bring the Government's approach closer to ours;
it is certainly not too late. For now, what matters is
to recognise that policy ideas are available which can make a
substantial difference to the digital divide. To bring them into
view in good time, however, policy development must start by asking
what the UK wants its infrastructure to look like, and what's
more, with the principle firmly in mind that any measures undertaken
should strive, above all, to reduce and ultimately eliminate the
digital divide.
75. Broadband policy should begin from the
question: what should the UK communications infrastructure look
like?
76. In addition, it should be a fundamental
principle of broadband policy that whatever measures are undertaken
to enhance or extend its availability, they strive to bring about
equality of opportunity to access broadband across all communities
in the UK.
77. In this sense, Government policy on broadband
should be driven, above all, by the social benefits it can unleash,
and the need to arrest and ultimately reduce a damaging digital
divide.
Principle 2: Taking a long-term,
but flexible view, and avoiding the 'speed trap'
78. The second principle that lies behind our
vision, as set out in paragraph 63, is as follows: policy should
be driven by an avowedly long-term, but also flexible view of
the infrastructure's future, avoiding prejudicing any particular
technology, or falling into the trap of specific speed targets.
We also note that different factorswhether speed, symmetry,
contention, latency, resilience or a combinationwill be
critical for different users, depending on their needs (see paragraph
15).
79. Consider the Government's goals. By the end
of this Parliament in 2015, they are aiming for:
· "providing everyone in the UK with
access to broadband speeds of at least 2Mbps";
· "and superfast broadband should be
available to 90% of people in each local authority area."[58]
80. First, it has to be said that in a field
quite so riddled with jargon and industry branding as broadband,
it has been singularly unhelpful for the Government to use a term
as vague as 'superfast,' and in so doing, to give it quite such
a flexible meaning. By our count, they have used three varying
definitions:
· In its early guidance to local authorities,
the meaning was clear: "BDUK has defined superfast broadband
as having a potential headline access speed of at least 20Mbps";[59]
· Later, in the glossary of its delivery
model, "BDUK defines superfast broadband infrastructure as
infrastructure capable of delivering speeds higher than 24Mbps,
in line with the Ofcom definition";[60]
· More recently, in its guidance on state
aid, this definition has shifted to "infrastructure capable
of delivering superfast broadband speeds (meaning speeds of 30
Mbps or in any event more than 24 Mbps)";[61]
· Furthermore, the BT Infinity product used
to deliver 'superfast' in Cornwall only guarantees a minimum of
15Mbps.
81. Due to this variability, the Government have
been forced to maintain 'superfast' as a somewhat moving target:
"All new projects must target delivery of superfast
broadband speeds of 30 Mbps or more, which is in line with the
EU's superfast/NGA broadband targets. However, due to earlier
UK definitions of superfast referring to speeds of more than 24
Mbps, projects already underway will be satisfying the superfast
broadband speed requirement if they seek to deliver speeds of
more than 24 Mbps."[62]
82. Second, the shifting nature of this target
also points to a conceptual problem with the notion of superfastand
any speed targetmore generally: the relatively arbitrary
differentiation it creates between a particular marker, 'superfast,'
on the one hand, and 'basic,' as a minimum level of service, on
the other.
83. Speed is a continuum. The Government may
have upgraded their definition of superfast to 30 Mbps, but the
industry often defines this at higher levels, and sometimes at
100 Mbps or more. Vint Cerf, Google's Chief Internet Evangelist
and renowned 'father of the internet,' is often quoted as half-joking
that, in the end, "'broadband' is whatever network speed
you don't have, yet!"[63]
BOX 2
Definitions of Superfast
84. By planting specific speed targets on this
continuum, the Government have been forced to orient their strategy
around ways of ensuring that people necessarily get these speeds.
This may sound like a virtue, but this early focus on superfast
speeds, has, further down the line, in our view, had a serious
and compromising effect on the detail of Government policy, regulation
and the industrial decisions which have followed from it.
85. The root of these problems is the following:
guaranteeing end-users specific speeds as part of policy obliges
the UK to build an infrastructure which goes all the way to people's
homes and businesses; it forces the Government to focus their
investmentand policies to stimulate investmenton
the local access network.
86. As reported in Chapter 2, local access or
the 'final mile' is the part of the network whose construction
presents the most challenging investment case. As a result, infrastructure
providers face weak incentives to invest in upgrades which might
be in the long-term and wider interest of the UK, but for which
there may be no commercial case in the shorter time horizon palatable
to their shareholders. It might be worth explaining why this is
the case.
87. Recall that the starting point for the Government's
policy arises from thinking about broadband primarily as a commercial
service proposition, and that then, given its spillover benefits,
the question that follows is how to encourage the market to supply
it to more people, and as much as possible to an agreeable standard.
Given the foregoing discussion, the question the Governmentwithin
the scope of this policy thinkingare therefore forced to
answer is: how to encourage the market to act in the wider interests
of the UK? Of course, they cannot simply make choices for investors.
The option which remains is to stimulate the market to act in
a responsible way through other meansby providing subsidy
for the areas of the country which the market would otherwise
ignore. Such a policy, however, assumes that in accepting this
subsidy and proceeding with investment, the market will do so
in a way that reflects the wider interests of the countryin
other words, as we argue below, in a way that makes the infrastructure
suitably inclusive, flexible and straightforward to upgrade in
the future as needs and demands change and evolve.
88. The market, in current circumstances, is
unlikely to act in this way. To extend out the 'final third,'
access to backhaul is required. Where the market has failed to
generate competition, connections to backhaul are predominantly
owned by the incumbent, BT. BT benefits from economies of scale
and scope; it can aggregate demand from a range of the segmented
markets that fall under the broad umbrella of providing connectivity.[64]
These advantages provide BT, inter alia, with the opportunity
to take greater risks than its competitors when it comes to its
investments, which as we will clarify in Chapter 4, can have the
effect of discouraging others from investing at all. In turn,
this 'competitive flight' removes the threat of competition and
hence the presence of any real pressure or urgency on BT to invest
itselfa set of circumstances which may have one of two
outcomes: no investment, and no further infrastructure construction
at all (this is the market failure associated with the final third,
and the problem the Government's policy seeks to address); or
investments are made, perhaps stimulated by subsidy, but which
may be short term, with no easy upgrade path to accommodate future
demand for enhanced capacity, and which will not serve the interests
of the UK more widely, as described above.
89. In summary, given theat presentrelatively
non-competitive nature of infrastructure provision, if you start
from the proposition that policy needs above all to stimulate
the market into providing its services more widely, you risk allowing
the market to make decisions about a vital component of national
infrastructure which are not in the longer-term and wider interests
of the UK. Embarking on policy making in such a way moves the
focus away from the right starting point: what should the UK's
broadband infrastructure look like in the first place, given its
status as an asset of strategic, national value?
90. As well as leading to an over-reliance on
the market, the Government's failure to start from the right question,
and instead focus straightforwardly on the delivery of faster
speeds, has created other problems. These are probably best understood
in the light of a wider debate which the Government's focus on
superfast has generated. Its central question is: what speed of
broadband does the UK really need?
BOX 3
The speed debate
The debate ranges widely and often features strong views about the uses to which superfast speeds could be putand in turn logically sophisticated discourse about whether these uses and services are of the kind which merit Government support for the infrastructure over which they would run. On one side, speed evangelists cite applications such as tele-health, cloud computing, and HD IPTV (Internet Protocol Television) as providing justification for public support. These, it is argued, carry significant positive externalities or 'spillover' effects, and may have considerable impact on the wider UK economy and society. These spillover effects range from the creation of new, 'distributed' industry models, and a whole variety of effects on home-working, socially isolated people and the provision of public services to remote communities. On the other side, sceptics argue that the same behaviours and industries can thrive on an infrastructure that has undergone an evolutionary upgrade, rather than a revolutionary overhaul, and so can be brought about at far lower public cost. In short, there is not yet a 'killer application' (killer app) which puts the case for wider or universal access to superfast speeds beyond all question.
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91. Our view is that the debates about speed
are somewhat of a red herring. There is justification for the
approach of those sceptical about the need for high speeds:
· asking first whether the purposes to which
broadband infrastructure will be put create a genuine need for
certain speeds;
· and in turn, whether those end uses are
sufficiently in the public interest that public subsidy is justified
to hasten the construction of the infrastructure they will rely
on.
92. Indeed, we endorse this second point and
believe strongly that broadband access is socially useful and
merits public subsidy. However, definitive answers to these questions
are pivotal, only if policy has been oriented around delivering
specific speeds to individual end users in the first place. Doing
so is flawed for the reasons we have given, as well as because
it inevitably forces Government to make dogmatic statements about
things which are better left flexible. By contrast, where policy
making begins by asking what the UK's communications infrastructure
should look like, and with the principle that it should be driven
by an avowedly long-term, but also flexible view of the infrastructure's
future, it will set itself a challenging task, but one which,
in our view, puts the Government on the right track.
93. This is precisely the principle which lies
behind our vision for the UK's broadband infrastructure: a national
network which allows diverse providers, large and small, to contribute
to the reach and resilience of our national connectivity and individuals
to benefit from whichever services, including public ones, will
run over it in time to come. Again, it may be helpful to explain
how the open access fibre-optic hub idea could make this possible.
94. As outlined in Box 1, the significance of
the open access fibre-optic hub is that it brings accessible,
and flexible points of connection to the wider network within
the reach of individuals and communities. Accompanied by changes
to the regulatory backdrop of the market discussed in Chapter
4, this would create a fertile environment for competition in
the local access network and allow these people to choose (and
pay for) the kind of final link or drop which they want themselveswith
all of the consequences this may have for upload and download
speeds, contention, latency, jitter and so on. This flexibility
to build out a local access network sufficient for demand at any
given point in time not only eliminates the need for relatively
arbitrary mandates for speed in the present, but will also make
it possible to meet whatever foreseeable demand there may be in
the future.
95. One undeniable feature of the killer app
debate is the impossibility of predicting which services will
be in demand, and what the needs of society will be in the longer
term. Even sceptics concede, however, that we have at our disposal
a specification for broadband infrastructure whose technical capacity
is so immense, that with it, even the most stretching estimates
of our likely needs could be met well into the future. It is called
point-to-point FTTP.[65]
96. What is more, the most stretching and long-term
estimates are ones we should take seriously and, at a minimum,
ensure our infrastructure can flexibly be upgraded to cope with.
There are a number of reasons why.
97. First broadband infrastructure is an asset
of strategic, national value. It does not itself bring about,
but it does enable, meaningful social and economic innovation
and change; if we want to be ambitious for ourselves, we have
to be ambitious for it, and under any circumstances it should
not hold us back. In this respect, we agree with the FTTH Council
Europe: "While the future needs of society cannot really
be fully anticipated, a network which has theoretically almost
infinite capacity is preferable to networks which are already
constrained."[66]
98. Second, there is also a basis on which we
believe we can, with some confidence, come to a view of the speeds
the infrastructure will have to support in the future. Neilsen's
law,[67] like Moore's
law,[68] extrapolates
from past experience to predict the future. It has proved a remarkably
accurate predictor of bandwidth capacity and demand. On this basis,
we should expect that those who are satisfied with 2Mb/s today
will demand ~8Mb/s in 2015 and ~64Mb/s by 2020, and so on. Our
infrastructure must be designed to cope with this advancing demand.
99. Finally, the history of the internet suggests
that it has enabled new developments, not because it was designed
with any of them in mind, but because it offered a very simple,
technical capacity for the transfer of information from one place
to another which people could then use their creativity and ingenuity
to exploit. We would expect greater capacity to unleash a plethora
of new ideas and services. As Francesco Caio, author of the 2008
Department for Business, Enterprise and Regulatory Reform report
on broadband, put to us in oral evidence: "once you have
optical continuity between point A and point B, the internet will
do the rest for you."[69]
100. We acknowledge that the local access network
presents a challenging investment case and moreover, that point-to-point
FTTP, as a gold standard, represents the technical specification
with the highest capital outlay required to construct it. There
are two options to be considered:
· Given limited resources, policy should
be directed at building out an end-to-end infrastructure which
is affordable, however likely it may be that in the first instance,
some will be left with nothing, and in time, this will itself
become redundant and require replacement;
or
· Given limited resources, policy should
be directed at building out an infrastructure to a high specification,
not necessarily all the way to people's doors but within their
reach, and providing them with the technical and affordable means
to connect to itin whatever way they choosethemselves.
101. The former option appears to have formed
the basis of the current policy, while the latter is the one we
endorse.
102. Consider in the light of these points, what
is happening. The Government's procurement process is widely expected
to award Openreach a clear majority of the contracts to upgrade
local access networks around the country.[70]
[71] In turn, Openreach
is planning to use this public funding to invest in types of network
and specific technologies which may meet the speed targets set
by the Government, but which, looking beyond 2015 are both relatively
constrained and liable to necessitate an expensive phase of upgrade,
if not outright replacement in the future. We will explain our
specific concerns in more detail in Chapter 4, but we identify
for now two particular problems which arise from the industrial
choices being made in the light of current policy:
· New and unnecessary barriers to the future
upgrade of the UK's broadband infrastructure will be erected;
· Availability of enhanced capacity broadband,
and any services which this might enable, will not be equal and
the digital divide is likely to widen.
103. These preferred choices are entirely understandable
as representing the rational choice of an investor under present
market conditions with all the relevant pressures that arise from
being a public limited company with an existing infrastructure
supporting a profitable business. As noted, they are also the
natural consequences of a policy developed in response to misconceived
considerationssolely about how to stimulate the market
into doing more of what it already does.
104. In contrast, properly thinking through questions
of first principle brings into view policy routes which can avert
these problems. Before considering this, we note that, even within
the bounds of the Government's market-stimulation approach, one
route to overcoming this challenge might be simply to accept as
unrealistic the emergence of any competitive pressure in the market
liable to increase the ambition of commercial players' plans.
Such an acceptance could, of course, leave the Government in thrall
to the commercial interests of such businesses rather than providing
them with an ability to direct broadband infrastructure in the
wider interests of the UK. For these reasons, this line of analysis,
could prompt calls for nationalisation, and these might well have
been deafening in a different era. Curiously, and as a matter
of fact, we note that there have been calls, not for nationalisation,
but for dispensing with competition and handing to Openreach the
necessary public money and the entire job of rolling out fibre.[72]
105. We note, however, that one of the advantages
of focusing policy around the promotion of open access fibre-optic
hubs, as we recommend, is the credible introduction of competitive
pressure to invest in local access networks for the long term.
Public subsidy should therefore be used to roll out open access
fibre-optic hubs to within reach of every community; the local
access network, given a reformed regulatory and policy backdrop
which we consider in Chapter 4, then becomes a different economic
phenomenon to the rest of the network and one in which competition,
and indeed community involvement would be newly stimulated. Under
such an approach, it would be possible for technical enhancements
to be introduced without specific, centralised mandates for speeds
or any other quality, for which demand may only exist in the future.
With the middle mile within the reach of individuals and communities,
such decisions can be made locally. They can, through the operation
of the market, choose the kind of final link or drop which they
want themselves and upgrade this flexibly as and when they choose
to, or there is need to do so.
106. What matters for the network, and therefore
for policy is not speed per se, but a simple, long-term assurance
that, as innovative new applications emergesome of which
may be core public serviceseveryone in the UK will have
the ability and opportunity to access an infrastructure which
means they can benefit from them. To achieve this, a suitably
far-sighted vision for a national, strategic asset like the national
broadband network is of an infrastructure that provides robust
and efficient communications reaching every community in the UK,
and which also allows anyone to procure and exploit connectivitywhere
possible, optical fibre connectivitybetween any two or
more points in the UK.
107. The focus of the current policy on ensuring
specific speeds in end-to-end networks is, however, likely to
support investment in technologies which will certainly help carry
faster speeds to a proportion of UK citizens by 2015, but which
will not do so universally and may confound and positively work
against progress to be made beyond 2015 towards an infrastructure
capable of supporting whatever technical capacity the UK as a
whole might come to need.
108. For these reasons, we believe policy in
this area should be driven by an avowedly long-term, but also
flexible view of the infrastructure's future, and inasmuch, should
avoid falling into the trap of orienting itself around speed targets,
which in the main, serve to provide useful material for sloganeers
but also obstruct a more sophisticated approach to building the
communications infrastructure the UK requires.
109. As this report was being finalised, HM Treasury
unveiled a new UK Guarantees scheme with the aim of accelerating
major infrastructure investment and providing support to UK exporters.[73]
Under this scheme, the Government's intention is to ensure that
where major infrastructure projects are struggling to access private
finance because of adverse credit conditions, these projects can
proceed. Applications can be made to Infrastructure UK, the HM
Treasury body focused on prioritising and enabling investment
in UK infrastructure. It is thought that around £40 billion
of projects could qualify for the provision of guarantees and
these projects could come from a range of sectors including transport,
utilities, energy and communications. This is, in our view, an
interesting development and we think that broadband infrastructure
projects would be appropriate beneficiaries of guarantees.
110. We recommend that future broadband policy
should not be built around precise speed targets end-users can
expect to receive in the short-term, however attractive these
may be for sloganeers.
111. In addition, broadband infrastructure
policy should be driven by an avowedly long-term, but also flexible
view of the infrastructure's future.
112. As an overriding principle, we recommend
that Government strategy and investment in broadband infrastructure
should always be based on a minimum ten year horizon and possibly
beyond.
113. While we acknowledge the presently elusive
nature of a 'killer app,' we believe there is a clear need for
the Government to state in explicit terms a long-term vision for
a pervasive, robust and resilient broadband infrastructure, central
to national policy and infrastructure planning.
114. We anticipate and recommend that policy
should be ultimately directed towards universal, point-to-point
FTTP as this is a technology not only able to accommodate current
demand, but at current rates of growth, will be able to accommodate
the UK's bandwidth demands for many decades to come.
115. In this sense, we recommend that the
Government should set out an even bolder vision for broadband
policy than is currently the case.
116. Given the impossibility, with current
constraints on resources, of rolling out universal point-to-point
FTTP, we recommend that Government policy should, as an intermediate
step, aim to bring national fibre-optical connectivitywhich
would include, as a minimum, fully open access fibre backhaulwithin
the reach of every community. This will provide the platform from
which basic levels of service can be provided to all, and an improved
service where there is sufficient demand.
117. As a point of principle, we believe it
is incumbent on the Government to ensure that policy and regulation
in the interim guarantee that there is a clear path from any intermediate
steps which may be taken to the roll-out of point-to-point FTTP
and that, crucially, these steps will not serve to hinder or hold
back any future upgrade.
Principle 3: Reinforcing the
resilience of the network
118. The third principle that lies behind our
vision, as set out in paragraph 63, is as follows: policy in this
area should strive to reinforce the robustness and resilience
of the network as a whole.
119. We note with interest that in the mid Nineteenth
Century, a Select Committee set up to consider the UK's contemporary
transport networks subscribed to a similar principle. Chaired
by Viscount Cardwell, their report recommended that:
"Parliament should secure freedom and economy
of transit from one end of the kingdom to the other and should
compel railway companies to give the public the full advantage
of convenient interchange from one railway system to another".
120. This Committee's work, the essence of which
is encapsulated in this statement, paved the way for the Railway
and Canal Act 1854.
121. At present, data in the UK seldom takes
the logically most efficient course from A to B. Traffic from
Edinburgh to Edinburgh, for example, travels via Manchester, Skipton
or London. This is because different proprietary networks erect
barriers to data originating on one, travelling over the other,
even if permitting traffic across networks would allow data to
take a more rational route. We rather suspect that the Cardwell
Committee would not have approved.
122. Aside from forcing data around irrational
routes, the effect of these barriers to cooperation is also to
render the whole network more vulnerable. Curiously, the architecture
of the Internet provides robustness through redundancy. Whereas
the tree architecture of the legacy telephone network makes whole
communities vulnerable to single points of failure,[74]
a network with built-in redundancy which allows data flexibly
to travel over any of part of it, would increase the robustness
and resilience of the whole. As people become more reliant on
broadband for day to day services, this will become ever more
important.
123. Again, if the work of policy development
in this area were to begin by asking what the UK's broadband infrastructure
should look like, we would argue that the robustness and resilience
of the network would emerge as a fundamental principleand,
therefore, ought to be an explicit component of policy.
124. It should be a fundamental principle
of broadband policy that measures be undertaken, where possible,
to reinforce the robustness and resilience of the network as a
whole.
125. We recommend the Government ensure freedom
and economy of passage for communication of data across the UK.
126. We recommend that Ofcom, in addition
to its duties on competition and investment, be given an additional
duty to monitor and foster the efficient utilisation of existing
capacity (including, for example, use of the communications infrastructure
owned by other infrastructure providers) to provide a robust and
resilient national network that promotes affordable open access
to wholesale and retail connectivity across the UK.
127. In outlining these three principlesdriving
broadband policy to reduce the digital divide, taking a long-term,
but flexible view, and reinforcing the resilience of the networkwe
have clarified the significance of the differences between our
vision, outlined at the start of this chapter, and the Government's.
As has been made clear, many of our differences could have been
avoided if the Government had started its policy thinking in the
right place, namely by asking: what should the UK's broadband
infrastructure look like in view of its place as a major strategic
asset, at least on a par with the UK's roads, railways and energy
networks?
Additional points relating to
the Government's vision
128. In addition to clarifying and proposing
a reorientation of the very vision behind Government policy, there
are three other issues which the Government could usefully take
into account in light of its current policy:
· Continuous upgrade and average speeds;
· Universal service obligation;
· Uptake and effective use of the internet;
129. First, however much we would resist them,
the focus placed by the current policy on specific speed targets
raises the importance of measurement. Currently, the scorecard
which Ofcom proposes to use to determine the Government's success
in achieving their targets appears to include measures of average
speed. This is a problem.
130. Evaluating speeds which end-users receive
on the basis of an average across a population is fraught with
problems:
· It is difficult to know whether any increase
in the average results from improvements for the 50% with speeds
greater than the median;
· By extension, it is impossible to know
whether higher average speeds are an indication of a narrower
digital divide or a wider one.
131. Furthermore, because the distribution of
speeds is highly skewed, the median is a more informative statistic.[75]
132. We recommend that the Government's targets
should refer to minimum and median levels of service, and that
Ofcom adapts its scorecard accordingly.
133. By extension, in order to ensure that the
digital divide is braced and gradually drawn in, it will be important
for the UK's low-end speeds to increase in line with the increase
in median speeds. Otherwise, those with the slowest connections
will not share in the advances elsewhere, and we will create
a widening digital divide which will be socially divisive.
134. In order to ensure the digital divide
is not widened, we recommend that the Government commit to reducing
the digital divide between the minimal service levels guaranteed
to all and the median service levels enjoyed by the majority.
135. Second, an unavoidable point of debate in
connection with the stipulation of specific speeds and minimum
service levels is whether it might be appropriate to introduce
a Universal Service Obligation (USO) to oblige infrastructure
providers and ISPs to provide both specific speeds and minimum
service levels.
136. It is our view that a Universal Service
Obligation (USO) is not an appropriate way to bring about universal
access to minimum levels of service, not least because in practice,
imposing legal obligations on ISPs could easily and quickly lead
to drawn out proceedings in the courts.
137. We do, therefore, endorse the approach
adopted by the Government: pledging a Universal Service Commitment,
to which it will be politically accountable, and stating explicitly
a clear political aspiration to provide universal access to a
minimum level of broadband provision. This, in our view, is at
this stage a more appropriate approach than introducing a legally-binding
USO.
138. However, there is an important, and foreseeable,
set of circumstances in which we would be likely to express an
alternative view on this point. A view which appears to be commonly
shared by the major ISPs is that, initially, the strongest driver
of consumers moving from basic to enhanced broadband will be Internet
Protocol Television (IPTV) services. The widespread involvement
in YouView and the recent battle between BSkyB and BT Vision for
rights to broadcast Premier League football games has only reinforced
this point.
139. It is likely that IPTV services will become
ever more widespread, and eventually the case for transferring
the carriage of broadcast content, including public service broadcasting,
from spectrum to the internet altogether will become overwhelming.
This may well be a more sensible arrangement, as spectrum is perfectly
suited to mobile applications, as Richard Hooper, OBE, Chairman
of the Broadband Stakeholder Group, told us:
"Most people watch their television in fixed
locations from fixed sets. Actually, spectrum's great wonder is
its ability for mobility."[76]
140. As such, it might be argued that spectrum's
current use for fixed, broadcast purposes is wasteful.
141. We recommend that the Government, Ofcom
and the industry begin to consider the desirability of the transfer
of terrestrial broadcast content from spectrum to the internet
and the consequent switching off of broadcast transmission over
spectrum, and in particular what the consequences of this might
be and how we ought to begin to prepare.
142. As and when this occurs, and particularly
if Public Service Broadcasting channels begin to be delivered
primarily through the internet, the case for a USO, echoing that
for television and radio, will become, in our view, significantly
stronger.
143. While we do not support the introduction
of a USO at present, we do believe that broadcast media will increasingly
come to be delivered via the internet. As and when that happens,
and particularly in circumstances where this applies to PSB channels,
the argument for recommending a USO becomes stronger. The Government
should begin now to give this active consideration.
144. Third, 8.12 million or 16.1% of adults in
the UK have never been online[77]
and many of these people are from some of the most vulnerable
social groups, as Dido Harding, CEO of TalkTalk and board member
of GO ON UK, underlined in oral evidence: "older, disabled
or people for whom English is not their first languagethose
are the three big groups" and "the most digitally excluded
people in society."[78]
145. These people are clearly at a manifest and
material disadvantage. According to a report prepared by PwC for
UK Digital Champion, Martha Lane Fox, there are a number of direct
benefits to individuals of going online, including:
· Saving £560 a year by shopping and
paying bills online;
· Better educational opportunities: "access
to a computer and the internet can improve children's educational
performance";
· Better employment opportunities: "people
with good ICT skills earn between 3% and 10% more than people
without such skills."[79]
146. Equally, moving people online is very much
in the wider interest of the UK economy and the Government. According
to the same report: "each contact and transaction with Government
switched online could generate savings of between £3.30 and
£12.00"[80]
Evidence received from Arqiva, a media infrastructure and technology
company, cast a spotlight on "studies undertaken by McKinsey,
Allen, OECD and the World Bank [showing] that a 10% increase in
broadband penetration results in a 1% increase in the rate of
growth of GDP."[81]
147. In this inquiry we have focused on broadband
infrastructure rather than digital literacy, although we may well
look at this area more closely in the future. We are aware, however,
that the achievements of Race Online 2012, the predecessor of
GO ON UK, include helping to drive the number of people who have
never been online down from 10 million to the current figure of
8 million over 2 years from 2010 to 2012. With further support,
it may be possible to drive this down still further. In particular,
we have heard a number of calls from those working in this area
for the Government to elevate digital literacy and internet uptake
to a higher level of priority. For example, Dido Harding told
us:
"Government needs to explicitly set out that
getting everyone online is a policy priority and therefore drive
further activity in this area."[82]
148. We have also heard of an innovative scheme
run by Three promoting digital inclusion:
"We have been looking at identifying organisations
and individuals who have contact with people likely to be socially,
economically and digitally excluded. These people are already
delivering services. We tried to encourage them to use our connectivity
in their service provision. We give that connectivity for free
to those organisations and individuals so that they can incorporate
it into the work that they do, so it does not become, 'Come along
and have a six-week taster course to enjoy the benefits of the
internet'. At times, that can be quite off-putting. It just becomes
part of the service that you are already accessingbe it
the library or hospice-at-home service, where the volunteers sit
with the individual for a number of hours, keeping them company.
It is about making it relevant to that individual."[83]
149. We welcome this initiative and hope that
similar initiatives can be devised and extended in the future.
- We bring to the Government's attention the
fact that we have heard a number of calls during this inquiry,
with which we agree, for uptake and effective use of the internet
to become a higher priority.
42 DCMS and BIS, Britain's Superfast Broadband Future,
December 2010. Available online: http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf Back
43
ibid. Back
44
ibid. Back
45
Though currently unlikely, it may be a matter of future welfare
policy to ensure that everyone can afford to do so. Also see paragraphs
65 and 150. Back
46
DCMS press release, 'Next phase of superfast broadband plans announced,'
6 December 2010. Available online: http://www.culture.gov.uk/news/media_releases/7619.aspx
Back
47
Q 767 Back
48
Q 807 Back
49
Guardian, 'UK rural broadband on hold as European commissioners
dig in heels', 3 July 2012. Available online: http://www.guardian.co.uk/technology/2012/jul/03/bduk-broadband-scheme-delayed-european-commission Back
50
EU Commission press release, 'State aid: Commission consults on
draft guidelines for broadband networks', 1 June 2012. Available
online: http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/550&format=HTML&aged=0&language=EN&guiLanguage=en Back
51
Paras 67(g) and 76(b). The consultation document is available
from the link in footnote 50 above. Back
52
European Commission-policy statement by Vice-President Kroes,
'Enhancing the broadband investment environment', 12 July 2012.
Available online: http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/12/554&format=HTML&aged=0&language=EN&guiLanguage=en Back
53
DCMS and BIS, Britain's Superfast Broadband Future, December
2010. Available online: http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf Back
54
Q 24 Back
55
DCMS and BIS, Britain's Superfast Broadband Future, December
2010. Available online: http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf Back
56
DCMS press notice, '90% of homes and businesses should have superfast
broadband by 2015', 12 May 2011. Available online: http://www.culture.gov.uk/news/news_stories/8098.aspx Back
57
Extrapolated from BT data. Back
58
DCMS press release, '90 per cent of homes and businesses should
have superfast broadband by 2015', 12 May 2011. Available online:
http://www.culture.gov.uk/news/news_stories/8098.aspx Back
59
DCMS, BDUK Broadband Delivery Project. Bidding guidance for
Local Authorities and other local public bodies. Award Round Spring
2011, 6 December 2010. Available online:
http://www.culture.gov.uk/images/publications/BDUK_bidding_guide.pdf Back
60
DCMS, BDUK Delivery Programme. Delivery Model, September
2011. Available online: http://www.culture.gov.uk/images/publications/BDUK-Programme-Delivery-Model-vs1-01.pdf Back
61
DCMS, National Broadband Scheme for the UK: State Aid Guidance:
Overview of the Scheme and Criteria for use, 20 March 2012.
Available online:
http://www.culture.gov.uk/images/publications/State_aid_Guidance_Overview_of_the_Scheme.pdf Back
62
ibid. Back
63
BBC News Online, 'Vint Cerf on Alan Turing: Why the tech world's
hero should be a household name', 18 June 2012. Available online:
http://www.bbc.co.uk/news/technology-17662585 Back
64
We will elaborate on this point in Chapter 4. Back
65
We refer to Fibre to the Premises (FTTP) rather than Fibre to
the Home (FTTH) in this report as FTTP captures both homes and
businesses. Back
66
FTTH Council Europe Back
67
Neilsen's law says that we can expect bandwidth demand to increase
roughly 8-fold every five years. Back
68
The IT industry is driven
by Moore's law: which essentially states that we should expect
and plan for revolutionary upgrades every 3-5 years as performance
grows exponentially. Back
69
Q 125 Back
70
Q 555 Back
71
i.e. in the areas of the country in which the commercial case
for upgrading the local access network has been deemed not to
be viable in the absence of subsidy. Back
72
BBC News Online, 'Fast broadband - who can compete with BT?, 7
February 2012. Available online: http://www.bbc.co.uk/news/technology-16924004 Back
73
HMT press notice, 'Government uses fiscal credibility to unveil
new infrastructure investment and exports plan', 18 July 2012.
Available online: http://www.hm-treasury.gov.uk/press_62_12.htm Back
74
BBC News Online, 'Attempted subsea cable theft takes out phones
and internet in Highlands,' 8 June 2012. Available online:
http://www.bbc.co.uk/news/uk-scotland-highlands-islands-18365150 Back
75
See, for example, Laerd statistics webpage:
https://statistics.laerd.com/statistical-guides/measures-central-tendency-mean-mode-median.php Back
76
Q 609 Back
77
Office for National Statistics, Internet Access Quarterly Update,
2012, Q1, 16 May 2012. Available online: http://www.ons.gov.uk/ons/rel/rdit2/internet-access-quarterly-update/2012-q1/stb-internet-access-quarterly-update-2012-q1.html Back
78
Q 428 Back
79
PwC, Champion for Digital Inclusion: the Economic Case for
Digital Inclusion, October 2009. Available online: http://www.parliamentandinternet.org.uk/uploads/Final_report.pdf Back
80
ibid. Back
81
Arqiva Back
82
TalkTalk Back
83
Q 356 Back
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